With US shredded scrap prices rising by a steeper than expected $65/ton this month, a price hike from US rebar producers is expected imminently. But as demand remains as soft as ever, only part of the raw material cost hike expected to be passed on to rebar offers.
Ahead of the price announcement, expected to be made this week, most US domestic rebar offers range from about $21.75 cwt. to $22.25 cwt. ($480/mt to $491/mt or $435/nt to $445/nt) ex-mill. Nucor and other mills are expected to announce at least a small base price decrease this week to mitigate the $65/nt rise in the Raw Materials Surcharge (RMS), with net rebar prices rising by perhaps half of the RMS increase for January 1 shipments. However, as mentioned, demand still remains soft so even if mills only announce a modest price increase, there is no guarantee that the market will accept it in full. Still, prices are expected to rise at least slightly following the domestic price announcement, and therefore the price trend for US domestic rebar is now slightly up. There has actually already been a slight uptick in activity observed recently due to this expected price increase by domestic mills. However, fabricated rebar is still offered at low prices from mill-affiliated fabricators and a significant increase for the straight-length rebar is not expected until fabricated rebar prices move up as well.
On the import side, most rebar offers to the US from Mexico have already risen, due to the scrap price increases and expectations of a price hike in the US. Mills in Mexico within the past couple weeks have announced sharp increases to domestic rebar offers, and export offers have reflected some of this increase as well.
However, it is common for Mexican longs mills to announce sharp price increases to test the market, and later retract them and start to offer better deals if they don't get orders at the new prices. Also, not all mills are completely insisting on raising their offers. There are some that are still offering low but the trend is definitely up even for the Mexican rebar offers that are lagging behind. Most of the discounted offers that had been floating around the market in late November have since disappeared.
Since last week, most import rebar offers to the US have risen to a level of approximately $22.00 cwt. to $23.00 cwt. ($485/mt to $507/mt or $440/nt to $460/nt) delivered to Texas, which reflects an increase of $1.25 cwt. ($28/mt or $25/nt) from the previous price level. Of course, with this price range exceeding that of US domestic mills, US bookings at this price level will be light to nonexistent. However, depending on the degree of the domestic price increase, Mexican mills may be able to achieve some bookings at this level later in the month. As with domestic prices, the Mexican import price range remains slightly up due to the upward scrap trend and expectations of a US price hike for January.
Regarding the demand outlook for rebar, there is still little good news to report. According to a new analysis of Census Bureau data conducted by the Associated General Contractors of America (AGCA), spending on nonresidential construction tumbled 1.5 percent in October, to the lowest annual rate since July 2007. However, this dip was offset by a 4.2 percent jump in residential construction during the month, leaving total construction spending virtually unchanged from September. Still, without a pick-up in private nonresidential construction - which dropped 2.5 percent in October from September and a sharp 21 percent compared to October 2008 - and public nonresidential spending, which sank 0.4 percent in October, rebar demand will have a difficult time recovering. Although public nonresidential projects, such as highways and transit projects, have seen some benefit from the federal Recovery Act funds, Congress has failed to pass a six-year surface transportation bill to replace legislation that expired at the end of September, and overall federal highway and transit funding is expected by the AGCA to drop by over $15 billion in 2010 without an increase in surface transportation funding.
Despite the near-term demand outlook for rebar being uncertain, at best, some firms are betting on recovery in the longer-term, namely, CMC Steel Arizona, which opened a new rebar minimill in Mesa, Arizona this week, which will serve customers in the western US.
One thing working for the US rebar market's favor is that overall import arrivals remain very light. Preliminary licensing data collected through December 8 show a sharp drop in US rebar import tonnage in November, as Turkish arrivals dried up completely during the month in question. License data show only 9,561 mt of rebar imports in November, with 8,244 mt coming from Mexico and most of the balance coming from the Dominican Republic (1,033 mt). This compares to October census data of 29,935 mt, which included 18,617 mt from Turkey, 9,439 mt from Mexico, and 1,500 mt from Dominican Republic.
